• Section 2.

Whenever used in this Code, the following terms shall have the respective
meanings hereinafter set forth or indicated, unless the context otherwise requires:

"(a) A contract of insurance is an agreement whereby one undertakes for a consideration to

indemnify another against loss, damage or liability arising from an unknown or contingent
event.

"A contract of suretyship shall be deemed to be an insurance contract, within the meaning
of this Code, only if made by a surety who or which, as such, is doing an insurance business
as hereinafter provided.

"(b) The term doing an insurance business or transacting an insurance business, within the
meaning of this Code, shall include:

"(1) Making or proposing to make, as insurer, any insurance contract;

"(2) Making or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;

"(3) Doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;

"(4) Doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code.

"In the application of the provisions of this Code, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance business.

"(c) As used in this Code, the term Commissioner means the Insurance Commissioner

o Definition of the law is subject to criticism because it does not include life insurance
which is a contract upon condition rather than to indemnify for no recovery can fully
repay for loss of life which is beyond pecuniary value
o Better definition is that a contract of insurance is an agreement by which insurer for a
consideration paid by the insured, promises to pay money or its equivalent to the latter
upon the happening of a loss, damage, or liability happening from an unknown or
contingent event
o To pay another for the happening of a fortuitous event beyond the effective control of
either party
o A written insurance contract is called a policy
o Insurance is to be determined by the nature of the contract regardless of its form
• A suretyship shall be deemed an insurance if made by a surety who is doing
insurance as a business
o Elements of the contract
• Subject matter, the thing being insured
• Consideration, the premium paid by the insured
 • Object and purpose, transfer and distribution of the risks of loss
o Characteristics of the contract
• Consensual, because it is perfected by the meeting of minds
• Voluntary, because it is not mandatory
▪ however some laws might require insurance as a requirement to giving
licenses
▪ It may also arise by operation of law like in GSIS and SSS
• Aleatory, because it depends on some contingent event
▪ To do upon the happening of an event which is uncertain OR is to occur at
an indeterminate time
• Executed as to insured, Executory upon the insurer
▪ Because insured already paid while insurer will only execute upon payment
for a loss
• Conditional, because it is subject to the happening of the event and the payment
of premiums
• A contract to indemnify, because the promise is to make good the loss of the
insured
▪ Which is why you cannot insure a party you have no insurable interest in
▪ Lack of interest make the insurance void
▪ Does not apply to life insurance
• Personal contract, because it does not attach to run with the property in that the
buyer cannot be his successor unless by express stipulation the parties decide to
make it run
▪ Personal insured interest on the property and not the property itself so it is
still personal
▪ Applies only to a particular individual and does not transfer except life
insurance which is assignable and do not represent a personal agreement
o Elements of a contract of insurance
• Insurable interest
• Insured is subject to a risk of loss through the impairment of that interest
• Insurer assumes the risk of loss
• Assumption of risk is part of a scheme to distribute actual losses among a large
group of persons bearing a similar risk
• Contribution of premium
o If only the first 3 are present then it is merely a risk shifting device and not a contract of
insurance which is a risk distributing device
• They spread the risk of loss faced by the insured among as many people who are
subject to the same risk through a premium where each member contributes to a
small degree toward compensation for the losses of any member
o Insurance does is NOT to prevent losses but to spread the loss over a large number of
people
o Coping with risk
• Limiting the probability of loss, like fire wall mechanisms
• Limiting the effect of loss
• Self-insurance
• Ignoring the risk
• Transferring the risk to another
o Value of transferring risks
 • Risk preferring, would forego a certain loss in the hope of not incurring a loss by
chance (50 percent chance to lose 1000)
• Risk neutral, indifferent to alternatives
• Risk averse, would choose the certain smaller loss
▪ People become more risk averse as the potential magnitude of loss
increases even if probability declines
▪ The more wealth a person has the less risk averse he is
o Economic effects of the transfer and distribution of risk
• Benefits society as a whole, since both parties benefit from the transaction
• Undesirable side effects, insured might not take steps to protect his property no
that risk of loss is not his to bear
• Problem of measurement of amount of risk transferred, so can't determine
proper premium amount because of moral hazard
• Sharing by insured of some responsibility for the risk, to bear any loss up to some
stated amount to bear with a moral hazard
• Problem regarding computation of premium, calculating expected loss is difficult
• Classification of risks, by charging people different premium rates depending on
group
• Subclassification of risks, adverse selection where although different risks still in
same group to balance each other out
o Fields of insurance
• Social Insurance, is compulsory and designed to provide a minimum of economic
security for large groups of persons
• Voluntary Insurance, not compulsory and is sought by the insured
▪ Commercial insurance, where the motivation is profit
• Personal insurance, concerned with losses due to earning power of a
person
• Property insurance, protection against loss arising from ownership or
use of property
• First kind indemnifies owner's loss of property
• Second kind, pays damages for which insured is legally liable
▪ Cooperative insurance, to accomplish the ends of social insurance by a
private enterprise
▪ Voluntary government insurance, not compulsory but still for the benefit of
the community
o Classification of contracts of insurance
• General old classes
▪ Marine, fire, life, accident
• Main new classes
▪ Insurance against loss or impairment of property interests
▪ Insurance against loss of earning power
▪ Insurance against contingent liability to make payment to another
o Classification by interests protected
• Property insurance, 1st party insurance because proceeds are paid to insured
• Liability insurance, 3rd party because interest are those of a different party's, no
fault insurance
• All insurance except liability is a first party insurance
• Life insurance is not 3rd party because the loss is suffered by the insured
 ▪ Unless third party rights as beneficiaries are chosen, it goes to the estate
o Insurance can also be categorized as all risk or specified risk (as to the causes of loss)
• In a specified risks burden of proof is on insured to prove that it falls within the
coverage
• All risk insurance is not absolute because it does not cover loss due to willful or
fraudulent acts
o Construction of insurance contracts
• To be interpreted in consonance with other stipulations in the contract
• Construed liberally in favor of insured because it is a contract of adhesion
o What constitutes as doing an insurance business
• Designation by insurer is not controlling
• Company FOUND to be engaged in insurance business
• Must not be incidental to a business if excludes losses from external or accidental
losses
• Principal object and purpose test
▪ If object is indemnity then it is insurance, if it is service and risk transfer is
incidental then it is not
o Functions of insurance
• Main function is risk bearing
• Subsidiary functions are to stimulate business enterprise, encourage business
efficiency, promotes loss prevention, encourages savings, and solves social
problems
• Indirect functions are the investment of funds, use of reverse funds, affects
prices, and is a basis of credit

• "Section 3. Any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.

"The consent of the spouse is not necessary for the validity of an insurance policy taken out
by a married person on his or her life or that of his or her children.

"All rights, title and interest in the policy of insurance taken out by an original owner on the
life or health of the person insured shall automatically vest in the latter upon the death of
the original owner, unless otherwise provided for in the policy.

o Requisites of a contract of insurance

• Subject matter with an insurable interest
▪ Anything with a pecuniary value which is subject to loss or deterioration
▪ May be persons or property
• Peril insured against that is contingent or unknown regardless of whether past or
future and a duration of the risks thereof
▪ Event happening will cause loss to a person having insurable interest
▪ OR create liability against him
▪ An unknown past event is only valid for marine insurance, fire for example
must be a future event
• A promise to indemnify
• A consideration known as the premium
 • A meeting of the minds upon the foregoing essentials
o A married woman may take out insurance for her life or that of her children without
consent of the husband
• Same goes with her paraphernal or separate property
o Insurance by minor is merely voidable
• Persons who are capable cannot allege the incapacity of those whom they have
contracted with
• Guardian may exercise in behalf of the minor
o Upon death of original owner of a policy of insurance on the life of a person, all rights
shall automatically go to the latter unless otherwise provided for in the policy

• "Section 4. The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize
o Extends to all schemes of distribution of prizes by chance
• Consideration
• Prize
• Chance
• One cannot insure himself against his failure of his ticket to win a prize
o Is not a wagering or gambling contract
• Though it is not through chance its purpose is still not for actual loss
• Insurance to distribute loss through mischance NOT gain through chance
• Insured seeks to avoid misfortune NOT court fortune
• Insurance equalizes fortune NOT increase the inequality
• What insure gains isn't at the expense of another NOT loss by the wagering party
• Creating insurance does not create a new risk of loss NOT like wagering where by
entering there is already a risk
o Similarity between insurance and gambling is that there is a promise to pay a given sum
on the occurrence of a future condition and the payment or promise to pay a stipulated
amount

• "Section 5. All kinds of insurance are subject to the provisions of this chapter so far as the
provisions can apply
o Matters not expressly provided for in the insurance code and special laws on insurance
are governed by the civil code

"TITLE 2
"PARTIES TO THE CONTRACT

"Section 6. Every corporation, partnership, or association, duly authorized to transact

insurance business as elsewhere provided in this Code, may be an insurer
o The business of insurance may now only be carried out by corporations, partnerships or
associations
o Inured is not always whom the proceeds are paid
o The relation between the 2 is one of a contingent debtor and creditor
o Terms used
• The insurance company can also be called an underwriter
• Assured is a synonym for the beneficiary
 o An insurance corporation is one formed to save any person or corporation harmless
from loss, damage, or liability from any unknown or future or contingent event
o Business of insurance is one affected by public interest and is thus subject to the
regulation and control by the state by virtue of police power

"Section 7. Anyone except a public enemy may be insured

o Capacity of part insured
• Natural, competent to make a contract and must possess an insurable interest
• Juridical, may take out insurance on property owned by it
o Public enemy designates a nation whom the Philippines is at war with
• Mobs and thieves are not public enemies
• Control test to check if corporations are a public enemy
o Effect of war on existing insurance
• Property insurance policy ceases to be valid as soon as insured becomes a public
enemy
• Life insurance is abrogated by reason of non-payment and not merely suspended
• Loss after war does not matter since the contract is not revived

"Section 8. Unless the policy otherwise provides, where a mortgagor of property effects
insurance in his own name providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the
interest of the mortgagor, who does not cease to be a party to the original contract, and
any act of his, prior to the loss, which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the mortgagee, but any act which,
under the contract of insurance, is to be performed by the mortgagor, may be performed
by the mortgagee therein named, with the same effect as if it had been performed by the
mortgagor
o Insurable interest of Mortgagee and mortgagor
• The interest of both are distinct from each other, insurance taken for his benefit
does not inure to the other
• Mortgagor of property as owner has an insurable interest to the extent of its
value even if the mortgage debt equals the value, this is because loss of the
property insured will not extinguish the mortgage debt
• Mortgagee has insurable interest to the extent of the debt secured since the
property is relied upon as security thereof; it is his interest being insured and not
the property
• Mortgagor cannot recover beyond loss, and mortgagee not beyond the credit at
the time of loss
o Insurance by mortgagee of his own interest
• Entitled to the proceeds before payment of mortgage
• Insurer subrogates MORTGAGOR
• Mortgagor now has to pay the insurer
o Insurance by mortgagor of his own interest
• It is competent to take out insurance for the benefit of mortgagee so loss is
payable to mortgagee
• The legal effect of this are as follows
▪ Contract is for the interest of the mortgagor so he does not cease being a
party
 ▪ Act of mortgagor prior to loss which would avoid insurance affects
mortgagee
▪ Acts to be performed by mortgagor may be performed by mortgagee
▪ In case of loss, mortgagee gets proceeds to the extent of credit
▪ Upon recovery debt is extinguished
o A union mortgage clause makes it so the acts of mortgagor do not affect mortgagee
o A loss payable mortgage clause makes it so loss is payable to mortgagee and that the
acts of mortgagor affect mortgagee
o Right of mortgagor under mortgagee's policy
• Before loss, is a conditional appointee
• After loss, entitled to receive money to the extinguishment of the debt as fast as
it becomes due

"Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a

mortgagee, and, at the time of his assent, imposes further obligations on the assignee,
making a new contract with him, the acts of the mortgagor cannot affect the rights of said
assignee
o Transfer from mortgagor to mortgagee only if insurer gives consent
o Effect of transfer is to substitute the assignee in place of the original insured in respect
to the right to claim
o Assignee acquires no greater right unless he makes a new contract with the insurer
o Fire policy is strictly personal
o Marine policy is assignable even without the consent of insurer
o Casualty policy requires consent, along with those subject to moral hazards
o Life insurance may be freely assigned before or after loss occurs

"TITLE 3
"INSURABLE INTEREST

"Section 10. Every person has an insurable interest in the life and health:

"(a) Of himself, of his spouse and of his children;

"(b) Of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;

"(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance; and

"(d) Of any person upon whose life any estate or interest vested in him depends

o A person is deemed to have an insurable interest in the subject matter insured where he
has a relation or concern that he will drive pecuniary or financial benefit from its
preservation, and damage from its destruction
• Interest does not imply a right to the hole or part of that thing
• Every benefit or advantage arising out of or depending on such thing is
considered comprehended EXCEPT life insurance where benefit need not
necessarily be of pecuniary measure
o Necessity of insurable interest
• Gives a person the legal right to insure the object of the policy, in the absence of
such interest the effect would be gambling (Which is illegal) because it would be
a mere bet on a future event
• Is necessary for the validity of an insurance contract, if a loss occurs without this
requirement insurer has the right to deny liability even if it's agent waives the
requirement
▪ Insurable interest does not apply to industrial life insurance
o Wager policies without interest is contrary to public policy because there is an interest
for the destruction of a subject matter rather than its preservation
o General classes of life policies
• Insurance upon one's life, taken upon his own life for the benefit of his own
estate or beneficiary
▪ no question of insurable interest
▪ Insurable interest is really only required as evidence of the good faith of the
parties
▪ Exception is when the court finds that a wagering policy has been taken out
by insured at the behest of a 3rd person as beneficiary
▪ Is evident when the beneficiary pays the premiums, has no emotional or
economic interest, and that the proposal take the insurance was from the
beneficiary
▪ Upon finding it is a wagering policy the court will render it VOID
• Insurance upon the life of another, must have insurable interest on the life of that
person because you benefit from the policy
▪ Insurable interest on the life of another must be a pecuniary one
▪ Requirement is to show interest in preserving the life insured in spite of the
insurance rather than destroy it
o Similarity between life insurance and donation
• Both are founded upon liberality when it is in his life for the benefit of another
• If it is for the life of another but for the benefit of a 3rd party, both must have
insurable interest in that life but if insurable interest of owner is satisfied a life
policy is assignable regardless of whether assignee has insurable interest in the
life
o Insurable interest upon whom one depends for education, support, or whom he has a
pecuniary interest in
• Mere blood relationship if sufficiently close enough gives insurable interest in the
life of another but it must be obtained in good faith and not for purposes of
speculation
▪ Spouses
▪ Legitimate ascendants and descendants
▪ Parents and their legit children and the legitimate or illegitimate children of
the latter
▪ Parents and their illegitimate children and the legit or illegitimate children
of the latter
▪ Legitimate brothers or sisters, full or half-blood (if not legitimately related
still bound to support if the need of the sibling of age EXCEPT if it is due to
causes imputable to the negligence or fault of claimant)
• Love and friendship by itself is not enough, clear showing of insurable interest
 ▪ Like expecting education from them
▪ Expect being cared for by them like in the future degenerative years
▪ Or a partner whose death will dissolve the firm
▪ Or one on an irreplaceable employee
o Insurable interest of a person in a life of another under a legal obligation to the former
• That a right possessed by him will be impaired by the loss of his life
• Also applies to a risk that the performance might be delayed or prevented
• A partner has no insurable interest in the life of the other if both have no capital
invested and neither is indebted to the other
o Insurable interest of creditor in life of his debtor
• Only to the extent to the amount of the debt
• The creditor is not acting as the agent of the debtor for the debtor's benefit and
does not inure to latter's benefit
• If whole debt has been paid then recovery is not permissible
• Different if debtor gets it for creditor because full payment does not invalidate
the policy but the proceeds go to debtor
• Even when a once valid debt becomes legally unenforceable, the insurable
interest still does not end because a moral obligations still exists
▪ Under our law, creditor may not insure the life of his debtor unless the
latter has a LEGAL obligation to pay
o Insurable interest in life of person upon which an estate or interest depends
• Where the continuation of the estate or interest vested upon him depends on the
insured
o On principle all contracts without consent of insured are contrary to public policy and
thus void
• Under our law consent is not essential to the validity of the policy so long as it can
be proved that the assured has a legal insurable interest at the inception of the
policy

"Section 11. The insured shall have the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in said policy. Notwithstanding the
foregoing, in the event the insured does not change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.

o Beneficiary refers to the person who is named or designated in a contract of life, health,
or accident insurance as the one to receive the benefits which become payable
according to the terms of the contract
o Kinds of beneficiary
• Insured himself
• 3rd person who paid a consideration, for a creditor, not party to the contract
• 3rd person through mere bounty of insured, designated, not party to the contract
o Limitations in the appointment of a beneficiary
• Article 2012 of the civil code
▪ Any person forbidden from receiving any donation under 739 cannot be
made beneficiary in life insurance (Guilty of adultery by preponderance of
evidence, guilty of the same criminal offense in consideration thereof, to a
public officer, descendants, ascendants by reason of office, common law
spsouse)
 • Regardless of no insurable interest so long as it is in good faith without intent to
make t a cover for a forbidden wagering contract
o Right of insured to change beneficiary in life insurance
• General rule, WON policy reserves to the insured the right to change, he has the
power to change the beneficiary without the consent of the old beneficiary who
receive no vested right
• Power to extinguish beneficiary's interest extinguishes at death of insured
• If insured waives the right to change beneficiaries then he has no power to make
such change without consent of the beneficiary
▪ Beneficiary gains a vested right from date policy is issued and delivered
▪ Insured can't even add a new beneficiary
▪ Cannot destroy the contract by not paying premium because the
beneficiary can pay instead
o Vested right or interest of the beneficiary should be measured on its full face value and
not it cash surrender value (minor limit)
o Where beneficiaries die before insured
• Beneficiary's representative is entitled to insurance proceeds, but this does harm
to intent of insured who only wants to support the beneficiary
• Estate of insured entitled to insurance proceeds especially if there is an express
stipulation in the contract to that effect, but even that is countered when
executors, administrators, or assigns are included as persons who can be
designated
o Designation of beneficiary (liberally construed for the benefit of whom the insured
intended)
• Descendants of the first degree, if with specific name then only him
• Husband, wife, or widow; "wife" on its own is a personal description with no need
of legal statue but if designated by status "the wife of insured" then the legal
spouse is entitled
• Wife AND children, includes children not common to both
• Family, court has to determine if person was so regarded by insured
• Heir or legal heirs, class of persons who would take the property in case he died
intestate
• Estate or legal representatives of deceased, construed in the strict technical
sense to mean executors and administrators unless it appears insured intended it
for heirs
• If no beneficiary then it will go to his legal heirs, to split between 2 innocent
women who married him

"Section 12. The interest of a beneficiary in a life insurance policy shall be forfeited when
the beneficiary is the principal, accomplice, or accessory in willfully bringing about the
death of the insured. In such a case, the share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified. In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the policy contract. If the policy contract is silent,
the proceeds shall be paid to the estate of the insured

o In case forfeited then it goes to the nearest qualified relative of the insured
• Legitimate children
 • Father and mother
• Grandparents or ascendants nearest in degree if living
• Illegitimate children
• Surviving spouse
• Collateral relatives
• The state
o Liability of insurer upon death of insured
• Death by legal execution, considered one of the risks assumed by insurer in a life
insurance policy
• Death by self-destruction, insurer is not exempted especially if it is for the benefit
of another rather than insured,
▪ But section 89 says otherwise, so long as it is not by negligence but a pure
voluntary act while in sound mind
• Death by suicide while insane, in the absence of express conditions the insurer is
still liable
• Death caused by beneficiary, general rule is it is forfeited unless it does not
amount to a felony like when it is in self-defense, accidental, or beneficiary was
insane
▪ Insurer can stipulate that it can be lost even if killed lawfully
▪ Even if killed through felony but not for gain, general rule will apply
• Death cause by violation of law, to avoid liability insurer must prove the causal
connection between the cause of death and the crime committed
▪ Violation of special law not considered a felony here

"Section 13. Every interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might directly damnify
the insured, is an insurable interest

o Anyone has an insurable interest in property who derives benefit from its existence or
would suffer from its loss
• It is enough that the event insured against has pecuniary injury as the natural
consequence
• Title or right to possession is not essential
• Expectation of loss without any legal right is not an insurable interest (Burning
hotel)

"Section 14. An insurable interest in property may consist in:

"(a) An existing interest;

"(b) An inchoate interest founded on an existing interest; or

"(c) An expectancy, coupled with an existing interest in that out of which the expectancy
arises

o Existing interest, may be legal or equitable title

 • Representatives holding legal title can get the proceeds but only in benefit of
whom they are representing
• More than one insurable interest may exist in the property
o Inchoate interest, limited to the value of his share in the distribution
o Expectancy, with and existing interest (future crops owned by him)

"Section 15. A carrier or depository of any kind has an insurable interest in a thing held by
him as such, to the extent of his liability but not to exceed the value thereof

o This is allowed because a the loss of the thing may cause liability towards the depository

"Section 16. A mere contingent or expectant interest in anything, not founded on an actual
right to the thing, nor upon any valid contract for it, is not insurable

o A mere hope or expectation of benefit which may be frustrated will not support a
contract of insurance
• Son cannot insure his father's property that he expects to inherit
• Parents, children, and spouses can insure the life of each other because of a
mutual obligation to support each other (article 195 family code)
• Unsecured creditor cannot insure specific property of his debtor
▪ May do so when the debtor is dead because the personal obligation shifts
to the estate
▪ Judgment creditors have an insurable interest but to collect they must
show that the debtor has no other property out of which judgment may be
satisfied
• A beneficiary in a will has no insurable interest while the testator is still alive
unless testator expressly waives his right to revoke the will

"Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof

o Insurance contracts are one of indemnity, insurance more than the value of the
property is a wagering policy and thus void
o Anything that reduces the loss lessens the liability of the insurer

"Section 18. No contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property insured

o This applies even if insured subsequently acquires insurable interest

• The premium is then returned unless they are in pari delicto, doctrine of
indemnity will still apply in this case
• In life insurance it is not necessary for the beneficiary to have an insurable
interest in the life insured
o Doctrine of waiver or estoppel cannot be invoked because the public has an interest in
the matter independent of the concurrence of the parties
 •Mistake of insurer of insuring the building not owned instead of goods, insured
can still recover from the goods
o Measure of indemnity in insurance contracts
• Contracts of marine or fire insurance
▪ In valued policies the valuation of the thing is conclusive (can be proved
that the value is less or that there is fraud)
▪ Principle of indemnity cannot be invoked if they agree to replace or repair
but the cost is higher
• Liability insurance contracts
▪ If insured suffers no loss because liability cannot be enforced then there is
no obligation to pay
• Life insurance
▪ Are not contracts of indemnity because the life of a person is priceless but
merely a measure of the amount insurer has bound himself to pay, it is
more of an investment
• Personal accident insurance contracts
▪ Life and limb are not susceptible to exact uniform valuation
▪ Is a contract of indemnity if it is on the life and limb of another purpose
though a policy of fixed benefits is usually issued
• Health insurance contracts
▪ Those that provide specific periodic income to the disable is not an
indemnity but those that cover medical expenses are
• Health care agreement
▪ A contract of indemnity because it is a nonlife insurance

"Section 19. An interest in property insured must exist when the insurance takes effect, and
when the loss occurs, but need not exist in the meantime; and interest in the life or health
of a person insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs

o Time when insurable interest must exist

• For property it must exist at two distinct times, date of the execution of the
contract and date of the occurrence of the risk insured against otherwise it is
void.
• Insurable interest requirement is satisfied when the interest exists at the time the
policy is procured even if it ceases at the time of the insured's death. This is
because it is an investment, even if it is by a creditor but only for the rest of the
contract year
• Questions of insurable interest are not important in liability insurance
• It need not exist in the meantime for property
o Notwithstanding the great volume of authority to the contrary, the existence of an
insurable interest at the inception of the contract is not necessary for its validity unless
made so by statute
o Insurable interest in life and property distinguished
• As to extent, life is unlimited while property is limited to the value
• As to time when insurable interest must exist, in life it is enough that it exists only
at the time the policy takes effect
 • As to expectation of benefit, in life it need not have legal basis a reasonable
probability is sufficient and it need not be pecuniary (for family only), For
property a legal basis even if remote is needed

"Section 20. Except in the cases specified in the next four sections, and in the cases of life,
accident, and health insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the insurance, suspends the
insurance to an equivalent extent, until the interest in the thing and the interest in the
insurance are vested in the same person

o Mere transfer of a thing inured does not transfer the policy but suspends it until the
same person becomes the owner
• The goal here is to prevent a motive of destroying the property when the interest
has lessened
• Interest does not pass by mere execution of pledge or mortgage
o The exceptions to the above general rule are
• Sec. 20 In life health and insurance
• Sec. 21 change of interest in the thing after the occurrence of an injury resulting
in loss
▪ The contract must be divisible where the avoiding of one does not affect
the others
▪ Whether it is divisible is a question of intention, not separately valued and
only one premium is evidence of indivisibility
• Sec. 22 change of interest in one or more several things insured separately
insured
• Sec. 23 change of interest by succession on death of insured
▪ His interest in the insurance passes on to the person taking his interest in
the thing insured
• Sec. 24 Transfer of interest by one of several partners who are jointly inured to
the others
▪ Transfer does not affect the risk because no new party is brought into the
contractual relationship with the insurer
▪ If there is a stipulation that a sale or transfer of the undivided interest voids
insurance and it is sold to a copartner without permission then the policy is
avoided
• Sec. 57 When policy is framed that it will inure to the benefit of whomever during
the continuance of the risk may become the owner of the interest insured
• Art. 1306 CC When there is express prohibition of alienation in the policy, the
contract is not suspended but avoided

"Section 21. A change of interest in a thing insured, after the occurrence of an injury which
results in a loss, does not affect the right of the insured to indemnity for the loss

"Section 22. A change of interest in one or more of several distinct things, separately
insured by one policy, does not avoid the insurance as to the others
"Section 23. A change of interest, by will or succession, on the death of the insured, does
not avoid an insurance; and his interest in the insurance passes to the person taking his
interest in the thing insured

"Section 24. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance even though it
has been agreed that the insurance shall cease upon an alienation of the thing insured

"Section 25. Every stipulation in a policy of insurance for the payment of loss whether the
person insured has or has not any interest in the property insured, or that the policy shall
be received as proof of such interest, and every policy executed by way of gaming or
wagering, is void

o Two stipulation are declared void in this section

• That there is payment of loss even if there is no insurable interest, because this is
a wager policy
• That this policy shall be received as proof of insurable interest, insurable interest
cannot depend on the contract of insurance
o Absence of insurable interest may be raised by and for the benefit of the insurer alone

"TITLE 4
"CONCEALMENT

"Section 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment

o Four primary concerns of the parties to an insurance contract

• Estimation of the risk so insurer can decide whether he is willing to assume and at
what premium
• Precise delimitation of the risk, extent of the contingent duty to pay
• Control of the risk after it is assumed as will enable insurer to guard against the
increase of risk
• Determining whether a loss occurred and the amount of such loss
o Devices for ascertaining and controlling risk and loss
• Devices of concealment and representations
▪ To enable insurer to secure information with respect to the risk possessed
by the applicant
• Warranties and conditions
▪ To make more certain the general words used to describe the risk the
insurer undertook to bear
▪ For conditions existing at the inception of the contract
▪ Allows insurer to extinguish if facts that increase risk are present
▪ General description of the risk has two parts
• Designation of the specific property interest to be covered
 • Specification of the perils the property interest would be exposed (no
major operation)
• Exceptions
▪ Excludes certain specified risks that otherwise would have been included in
the contract
▪ Fire due to lightning for example can be excluded
• Executory warranties and conditions
▪ That certain conditions should or should not exist in the future otherwise
the contract is rescinded
• Conditions precedent
▪ To protect against fraudulent claims of loss
▪ Conditions like providing appointment of appraisers or conditions for
arbitration
o Requisites of concealment
• Party knows the fact he neglects to communicate
• Party concealing is duty bound to discloses such fact
• Party concealing makes no warranty of the fact concealed
• Other party has no means of ascertaining the fact concealed

"Section 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance

o Effect of concealment
• By the insured (141)

"Section 28. Each party to a contract of insurance must communicate to the other, in good
faith, all facts within his knowledge which are material to the contract and as to which he
makes no warranty, and which the other has not the means of ascertaining.

"Section 29. An intentional and fraudulent omission, on the part of one insured, to
communicate information of matters proving or tending to prove the falsity of a warranty,
entitles the insurer to rescind.

"Section 30. Neither party to a contract of insurance is bound to communicate information of

the matters following, except in answer to the inquiries of the other:

"(a) Those which the other knows;

"(b) Those which, in the exercise of ordinary care, the other ought to know, and of which the
former has no reason to suppose him ignorant;

"(c) Those of which the other waives communication;

"(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and
which are not otherwise material; and
"(e) Those which relate to a risk excepted from the policy and which are not otherwise
material.

"Section 31. Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed contract, or in making his
inquiries.

"Section 32. Each party to a contract of insurance is bound to know all the general causes
which are open to his inquiry, equally with that of the other, and which may affect the
political or material perils contemplated; and all general usages of trade.

"Section 33. The right to information of material facts may be waived, either by the terms of
insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in
other facts of which information is communicated.

"Section 34. Information of the nature or amount of the interest of one insured need not be
communicated unless in answer to an inquiry, except as prescribed by Section 51.

"Section 35. Neither party to a contract of insurance is bound to communicate, even upon
inquiry, information of his own judgment upon the matters in question.

"TITLE 5
"REPRESENTATION

"Section 36. A representation may be oral or written.

"Section 37. A representation may be made at the time of, or before, issuance of the policy.

"Section 38. The language of a representation is to be interpreted by the same rules as the
language of contracts in general.

"Section 39. A representation as to the future is to be deemed a promise, unless it appears

that it was merely a statement of belief or expectation.

"Section 40. A representation cannot qualify an express provision in a contract of insurance,

but it may qualify an implied warranty.

"Section 41. A representation may be altered or withdrawn before the insurance is effected,
but not afterwards.

"Section 42. A representation must be presumed to refer to the date on which the contract
goes into effect.

"Section 43. When a person insured has no personal knowledge of a fact, he may
nevertheless repeat information which he has upon the subject, and which he believes to be
true, with the explanation that he does so on the information of others; or he may submit the
information, in its whole extent, to the insurer; and in neither case is he responsible for its
truth, unless it proceeds from an agent of the insured, whose duty it is to give the
information.

"Section 44. A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

"Section 45. If a representation is false in a material point, whether affirmative or promissory,

the injured party is entitled to rescind the contract from the time when the representation
becomes false.

"Section 46. The materiality of a representation is determined by the same rules as the
materiality of a concealment.

"Section 47. The provisions of this chapter apply as well to a modification of a contract of
insurance as to its original formation.

"Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to the commencement of an
action on the contract.

"After a policy of life insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two (2) years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or misrepresentation of the insured or
his agent.

"TITLE 6
"THE POLICY

"Section 49. The written instrument in which a contract of insurance is set forth, is called a
policy of insurance.

"Section 50. The policy shall be in printed form which may contain blank spaces; and any
word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete
the contract of insurance shall be written on the blank spaces provided therein.

"Any rider, clause, warranty or endorsement purporting to be part of the contract of

insurance and which is pasted or attached to said policy is not binding on the insured, unless
the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned
and written on the blank spaces provided in the policy.

"Unless applied for by the insured or owner, any rider, clause, warranty or endorsement
issued after the original policy shall be countersigned by the insured or owner, which
countersignature shall be taken as his agreement to the contents of such rider, clause,
warranty or endorsement.
"Notwithstanding the foregoing, the policy may be in electronic form subject to the pertinent
provisions of Republic Act No. 8792, otherwise known as the ‘Electronic Commerce Act’ and
to such rules and regulations as may be prescribed by the Commissioner.

"Section 51. A policy of insurance must specify:

"(a) The parties between whom the contract is made;

"(b) The amount to be insured except in the cases of open or running policies;

"(c) The premium, or if the insurance is of a character where the exact premium is only
determinable upon the termination of the contract, a statement of the basis and rates upon
which the final premium is to be determined;

"(d) The property or life insured;

"(e) The interest of the insured in property insured, if he is not the absolute owner thereof;

"(f) The risks insured against; and

"(g) The period during which the insurance is to continue.

"Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of
the policy. Within sixty (60) days after issue of a cover note, a policy shall be issued in lieu
thereof, including within its terms the identical insurance bound under the cover note and
the premium therefor.

"Cover notes may be extended or renewed beyond such sixty (60) days with the written
approval of the Commissioner if he determines that such extension is not contrary to and is
not for the purpose of violating any provisions of this Code. The Commissioner may
promulgate rules and regulations governing such extensions for the purpose of preventing
such violations and may by such rules and regulations dispense with the requirement of
written approval by him in the case of extension in compliance with such rules and
regulations.

"Section 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the
policy.

"Section 54. When an insurance contract is executed with an agent or trustee as the insured,
the fact that his principal or beneficiary is the real party in interest may be indicated by
describing the insured as agent or trustee, or by other general words in the policy.

"Section 55. To render an insurance effected by one partner or part-owner, applicable to the
interest of his co-partners or other part-owners, it is necessary that the terms of the policy
should be such as are applicable to the joint or common interest.
"Section 56. When the description of the insured in a policy is so general that it may
comprehend any person or any class of persons, only he who can show that it was intended
to include him, can claim the benefit of the policy.

"Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during
the continuance of the risk, may become the owner of the interest insured.

"Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it
until the same person becomes the owner of both the policy and the thing insured.

"Section 59. A policy is either open, valued or running.

"Section 60. An open policy is one in which the value of the thing insured is not agreed upon,
and the amount of the insurance merely represents the insurer’s maximum liability. The value
of such thing insured shall be ascertained at the time of the loss.

"Section 61. A valued policy is one which expresses on its face an agreement that the thing
insured shall be valued at a specific sum.

"Section 62. A running policy is one which contemplates successive insurances, and which
provides that the object of the policy may be from time to time defined, especially as to the
subjects of insurance, by additional statements or indorsements.1âwphi1

"Section 63. A condition, stipulation, or agreement in any policy of insurance, limiting the
time for commencing an action thereunder to a period of less than one (1) year from the time
when the cause of action accrues, is void.

"Section 64. No policy of insurance other than life shall be cancelled by the insurer except
upon prior notice thereof to the insured, and no notice of cancellation shall be effective
unless it is based on the occurrence, after the effective date of the policy, of one or more of
the following:

"(a) Nonpayment of premium;

"(b) Conviction of a crime arising out of acts increasing the hazard insured against;

"(c) Discovery of fraud or material misrepresentation;

"(d) Discovery of willful or reckless acts or omissions increasing the hazard insured against;

"(e) Physical changes in the property insured which result in the property becoming
uninsurable;

"(f) Discovery of other insurance coverage that makes the total insurance in excess of the
value of the property insured; or

"(g) A determination by the Commissioner that the continuation of the policy would violate or
would place the insurer in violation of this Code.
"Section 65. All notices of cancellation mentioned in the preceding section shall be in writing,
mailed or delivered to the named insured at the address shown in the policy, or to his broker
provided the broker is authorized in writing by the policy owner to receive the notice of
cancellation on his behalf, and shall state:

"(a) Which of the grounds set forth in Section 64 is relied upon; and

"(b) That, upon written request of the named insured, the insurer will furnish the facts on
which the cancellation is based.

"Section 66. In case of insurance other than life, unless the insurer at least forty-five (45) days
in advance of the end of the policy period mails or delivers to the named insured at the
address shown in the policy notice of its intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of coverages, the named insured shall be
entitled to renew the policy upon payment of the premium due on the effective date of the
renewal. Any policy written for a term of less than one (1) year shall be considered as if
written for a term of one (1) year. Any policy written for a term longer than one (1) year or
any policy with no fixed expiration date shall be considered as if written for successive policy
periods or terms of one (1) year.

"TITLE 7
"WARRANTIES

"Section 67. A warranty is either expressed or implied.

"Section 68. A warranty may relate to the past, the present, the future, or to any or all of
these.

"Section 69. No particular form of words is necessary to create a warranty.

"Section 70. Without prejudice to Section 51, every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or in another instrument signed
by the insured and referred to in the policy as making a part of it.

"Section 71. A statement in a policy, of a matter relating to the person or thing insured, or to
the risk, as fact, is an express warranty thereof.

"Section 72. A statement in a policy, which imparts that it is intended to do or not to do a

thing which materially affects the risk, is a warranty that such act or omission shall take place.

"Section 73. When, before the time arrives for the performance of a warranty relating to the
future, a loss insured against happens, or performance becomes unlawful at the place of the
contract, or impossible, the omission to fulfill the warranty does not avoid the policy.

"Section 74. The violation of a material warranty, or other material provision of a policy, on
the part of either party thereto, entitles the other to rescind.
"Section 75. A policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy.

"Section 76. A breach of warranty without fraud merely exonerates an insurer from the time
that it occurs, or where it is broken in its inception, prevents the policy from attaching to the
risk.